Law of Large Numbers

MathematicsStatisticsDecision Making

The Law of Large Numbers states that as a sample size increases, its average becomes closer to the population mean.

Introduction

The Law of Large Numbers states that as a sample size increases, its average becomes closer to the population mean.

Core Principles

  1. Stability Over Time: Larger samples reduce variability.
  2. Predictability: Long-term results are more reliable than short-term outcomes.
  3. Risk Management: Mitigate uncertainty with larger datasets.

Applications

  • Insurance for setting premiums based on actuarial data.
  • Investment to reduce portfolio volatility.

Related Resources

  • Tools: Statistical modeling software.
  • Book: "The Drunkard’s Walk" by Leonard Mlodinow.

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